Banking quick review: assets and liabilities

by PlanMaestro

First of all, thanks to Bill Moreland from BankRegData that granted us permission to post his latest commentary. Every month, he chooses some graphs from his service to address some critical issue. If you are not subscribed I suggest you doing so.

His latest installment tackles the latest results of the banking system. We will start sharing his view on the balance sheet, leaving the income statement for a follow-up.

I have added a few comments at the end.

This week reviews the Banking Industry 3rd Quarter 2011 performance for Assets, Liabilities and Income/Expense. The next mailing in a couple weeks will cover Asset Quality, Loans, Restructures and REO.

Total Assets industry wide climbed $208.28 Billion over Q2 and are now at $13.84 Trillion. This is the second highest number ever and just shy of the peak of $13.89 Trillion set in 2008 Q4.

Please note the $252 Billion bump in 2010 Q1 up to $13.36 Trillion. The number would have shrunk were it not for the $291 Billion lift from the international Credit Card balances being brought on to the Call Reports. Note the impacts of this on Pre-Tax NOI & NIM in tables coming up shortly

Goodwill and Other Intangibles make up the majority of the drop in the Other Assets category.

The growth in Net Loans & Leases, while considerably lower than Securities, Trading and Fed Funds, does mark the second consecutive quarterly increase. This is the first time that has happened since 2008 Q2.

That said, banks are becoming less and less focused on lending.

The chart above details Net Loans as a percentage of Total Assets. I did a spot check on the FDIC data going back to 1992 and could not find a number lower than this quarter’s 51.70%.

Deposits grew $233 billion Q on Q (2.38%) and surpassed $10 Trillion for the first time. In 3 years, deposits have grown $955.84 Billion, since 2003 Q1 they have grown $4.34 Trillion.

Other notable items from the Liabilities & Equity side of the Balance Sheet:

  • $38.18 Billion increase (12.92% Q on Q) in Trading Liabilities
  • $26.25 Billion increase (7.34% Q on Q) in Other Liabilities
  • $106.85 Billion decrease (-10.87% Q on Q) in Other Borrowed Monies ($17.91 Billion drop (-5.25%) in FHLB Advances)


What do we make of this?

  • What Liquidity Concerns?: the banks are flooded with deposits and what they are lacking is loan demand.
  • Loan Growth Anemic: banks are still hoarding but there are some initial signs that it could be restarting.
  • Goodwill Written Down: improving the asset quality. There has been a lot of focus in tangible assets and equity, but the issue is becoming less important by the day.
  • Franchise Value Increasing: assets are growing, deposits are growing. If the assets are good, the franchise value is also growing

The bad news is that the same large liquidity and lack of loan generation is starting to affect the banks’ net interest margin, but that is an issue we will tackle in the follow-up.